Refund claim after a levy

Taxpayer receives social security and runs a small sole proprietorship for which he receives 1099-MISC forms (buys and sells equipment, small net profit). He stopped filing tax returns in 2012, and from that point forward, his wife threw all IRS notices away before he had a chance to see them. Based on the 1099-MISCs, a substitute return was created for 2012, and a liability of $15,000 was calculated. This was gradually taken from him over the years (from bank accounts and social security checks).

I am going to file a tax return for him for 2012 (finally), and it will show no tax liability due to business deductions. My question is whether I can get back all of the money that was taken. The statute of limitations is two years after payment, but I'm not sure if that applies to levies. Can I go back beyond two years, to the money that was seized before then? If not, can I perhaps claim financial disability or innocent spouse?

The levy is a form of payment. The IRS will send back what is in statute (2 years), but you might

Innocent spouse is generally for liabilities that should be paid by the spouse. Since the SFR liability was for the taxpayer's activities, this won't apply. Instead, the taxpayer should qualify for reasonable cause relief from FTF/FTP penalties. Unfortunately that won't be relevant as there was a zero liability.

Obviously, get his tax account transcripts for 2013 and on so you can get ahead of the SFRs in statute - SFRs for 2015 or 2016 and later should have under 3 years since filing.

Attax, remember that you must file the return with the Audit Reconsideration unit or it will literally never be processed. Before you send in the return, you should check to determine when the last payment on the balance due was made. If it's been more than two years, no funds can be returned and there is no reason to submit the return.

For 2012, the two year look back rule applies. On the other hand here, if there was self-employment tax on the SFR assessments, the income gets added to the taxpayer's Social Security earnings account and affects his benefit. You may want to leave well enough alone.